Medicare Program Cost-Savings Analysis for a Demonstration Project Providing Medicare Benefits to Eligible Beneficiaries Residing in MexicoThe need to cap spending and to find innovative reforms that reduce Medicare Program costs is well documented. Actuarial data predicting a looming deficit and eventual insolvency of the Medicare Trust Fund make it ever more urgent to find savings as the percentage of seniors in the U.S. population increases and health care costs continue to climb.
Based on data from a number of sources, a strong argument can be made that providing Medicare benefits to eligible beneficiaries in Mexico would result in substantial savings to the Medicare Trust Fund.
According to a report by the Kaiser Family Foundation, Medicare spent on average $6,255 per beneficiary on health items and services in 2005.¹ The following chart from that study, based on the Medicare Current Beneficiary Survey, details the changes in Medicare spending between 1997 and 2005. In 2005, Medicare covered 41.1% of beneficiaries' total health care spending. While this represented a decrease of 3.7% in the total share of individual beneficiary health care spending, the per-beneficiary increase in spending was $1,803. Beneficiary out-of-pocket spending and third-party payers have been picking up a growing portion of the increasing cost of healthcare, but this is not an option without limits. Medicare must look to every available innovation for cost savings.
¹ Medicare: Revisiting "Skin in the Game" Among Medicare Beneficiaries; an updated analysis of the increasing financial burden of health care spending from 1997 to 2005. Tricia Neuman, Juliet Cubanski, and Anthony Damico. February 2009; Henry J. Kaiser Family Foundation.
In September 2008, the Mexican government's Unidad de Seguros, Pensiones, y Seguridad Social, Secretaría de Hacienda y Crédito Público (Mexico's Ministry of Finance; Insurance, Pensions, and Social Security Unit) published the results of a survey of expatriate U.S. and Canadian residents in Mexico.² In that survey, which sought to identify the major obstacles faced by immigrating foreigners to Mexico, 80% of respondents were U.S. citizens. Nearly half (48.8%) of respondents were 61 years of age or older, and 76.5% were retired. Over two thirds (71.3%) were year-round residents and 28.8% were part-year residents in Mexico.
Over half of the respondents (56.8%) indicated some difficulty with obtaining medical coverage in Mexico, with 17% indicating extreme difficulty. Thus, 66.1% had paid for medical expenses out-of-pocket, despite having coverage in the U.S, while 9% claimed never to have visited a doctor in Mexico.
Nearly Eighty five percent (84.8%) felt that medical costs were lower or much lower than in the U.S., while 67.3% felt that service was as good as or better than that available in the U.S. And 82.5% believed that if Medicare benefits were available in Mexico, more Americans would retire there.
With regards to the cost of medical services, it is not just the perceptions of expatriate residents that confirm lower costs in Mexico. A cost comparison of some common procedures shows Mexico pricing to be 75% to 80% lower than in the United States.³ And on average for a broad "basket" of treatments and procedures, Mexican health care costs no more than 35% of that same "basket" in the U.S.
² Resultados de la Encuesta de Percepción entre Ciudadanos Estadounidenses y Canadienses Residentes en México. Dr. Rodrigo García Verdú, September, 2008.
³ Data for Mexico provided by John Zipprich, Medical Counsel for the Christus-Maguerza Hospital in Monterrey (affiliated with the Christus hospital group headquartered in Texas). Data for the U.S. provided by Dr. David Warner, University of Texas LBJ School of Public Policy, Austin TX.
It is certainly the case that the requirements of additional medical and financial records-keeping, certification to international standards and improved administration will add some costs to Mexican healthcare providers, and place some upward pressure on medical services pricing in the market. However, both the Mexican government and the health care industry are already pursuing these innovations. Those modest cost increases are already a fact in most urban markets.
As a health care system matures and develops in a growing economy, improved medical, financial, and administrative records keeping help to ensure quality of care and improve health care outcomes, while improving overall efficiency (by eliminating duplicative procedures, for example). Thus, such innovations are a naturally occurring process, and this has been occurring in Mexico for some time.
Systems can become overly bureaucratic, to be sure, resulting in waste, inefficiency, and the potential for fraud. There is a growing recognition in the U.S. that balance must be maintained.
One major factor driving improvements in administrative capacity and international certification in Mexico is the desire to attract a booming medical tourism market. Mexico competes principally with Brazil, India, Singapore, Thailand, Costa Rica, and the Philippines for a share of the $40 billion (and growing) medical tourism market, which comes overwhelmingly from the U.S. While Mexico currently lags behind Southeast Asia in healthcare infrastructure, it is already the preferred destination for dental and cosmetic surgery. Significant investments in medical facilities, certification to international standards and physician training, along with much easier travel routes from the U.S., means Mexico is likely to overtake Southeast Asia in more complex medical procedures such as orthopedic and cardiovascular surgeries in the near future.
Whether Medicare reimbursement comes to Mexico, these innovations are occurring, and will undoubtedly add some modest cost to services. But Southeast Asian competitors for medical tourism dollars have successfully kept prices low. Even in the unlikely scenario that Mexican prices climbed to 50% of U.S. prices, the potential for Medicare savings would still be large.
Consider the following:
- Assume 20,000 enrollees in a Medicare Demonstration Project in Mexico.
- Assume the worst case scenario, that Mexican health care costs climb to 50% of U.S. costs.
- Using the 2005 Medicare per-beneficiary spending, as shown in the Kaiser report previously cited.
- Assume that currently, 64% of Mexico's expatriate seniors are travelling back to the U.S. for major medical care.†
† Dr. David Warner, Medicare in Mexico: Innovating for Fairness and Cost Savings, 2007
Thus, a worst case scenario, in which:
- Health care costs in Mexico increased to 50% of U.S. costs; and
- Medicare utilization rates in Mexico are 100% of enrollees, compared to an estimated 64% now using Medicare by traveling back to the U.S.
However, the savings are likely to be larger. If enrollees in the Mexico Demonstration have a greater tendency to seek early diagnosis, preventive care, and wellness management, a portion of the high-cost inpatient care they are now obtaining in the U.S. would be eliminated. Because seniors in Mexico are currently paying for outpatient services out-of-pocket, it is almost certain they are now foregoing care that would mitigate later inpatient treatments and procedures. With a Medicare Part B option, more seniors will seek early interventions, reducing costs and resulting in improved health outcomes.
